Blue Skies

Another day, more blue skies for the major stock market indices. The pain for the bears has to be strong and growing, but I have yet to see evidence that they are throwing in the towel en mass. And price action has done absolutely wrong to suggest anything more than a trading pullback.

As I mentioned the other day, I think it pays to be a little more vigilant here, not that I think we are going to see a full fledged correction or the need to make outright sales to raise cash. Sentiment has grown a little complacent and stocks are at all-time highs, sometimes an ingredient for a quick pullback. However, the plan remains the same. Until proven otherwise, pullbacks are buying opportunities.

The longer the market can go without giving up significant gains, the more likely the resolution will be sharply higher. As a bull, it would be great to see some sideways action for a week or so and then another blast higher to really squeeze the bears. Ultimately, I still believe that stocks will experience a major blow off to the upside before the bull market ends, however, it doesn’t look like that’s right here.

Sector leadership continues to rotate in an intermediate-term positive fashion with REITs, utilities and staples all ceding to consumer discretionary, semis, biotech.

Gearing up to visit Jeff Macke and the good folks at Yahoo Finance tomorrow and then see my old friend Melissa Francis at Fox Business on her show MONEY.

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Lines in the Sand

The bulls are back to pressing against the upper end of the short-term trading range and should attempt to close above those lines in the sand. On the Dow, the level is 17975 on a closing basis while it’s 2073 on the S&P 500. Both are just a one day rally away. The S&P 400 already saw all time highs last week while the Russell 2000, long left for dead by the market, has a line in the sand at 1215 which is one good morning away. Finally, the Nasdaq 100, dominated by Apple and few other mega tech stocks, is breaking out of its multi-month period of digestion and is poised to see fresh highs shortly.

Unless the major indices fail to exceed their lines in the sand this month and rollover to new 2015 lows, the ball is firmly in the hands of the bulls and they will need to run with it.

On the key sector front, while the banks and transports continue their slumber, the semiconductors are starting to wake up. Fresh bullish leadership is emerging from the consumer discretionary sector and homebuilders while the defensive leaders like utilities and REITs are lagging. If this new trend continues, it would have very bullish implications over the coming months.

On the flip side, long-term treasuries have quietly taken it harshly on the chin with the exchange traded fund TLT down more than 5% from the highs. The are supposed to step right here…

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Bears Creeping In

In yesterday’s update, I drew two short-term lines in the sand, looking for the major indices to close below Monday’s low or above last week’s high to signify the next move. Yesterday, we saw the Dow and S&P 500 stay above Monday’s low, but the S&P 400 and Russell 2000 closed below Monday’s low. That leaves us leaning in the bearish direction awaiting full confirmation.

Leadership from biotech, REITs and utilities has started to wane, but the financials are trying to step up here as the market rotates. High yield bonds are underperforming in the short-term and that’s a bit worrisome if it continues.